3
PBK (2/14)
Index [WPRef]
PBK-CX-13.2: Additional Disclosures for Noncarrying Broker-dealers
Entity: Name] / Financial Statement Date:10/29/2014Prepared by: / Date:
Explanation
The following is a checklist of supplemental disclosure requirements that are unique to noncarrying broker-dealers. The checklist should be completed in addition to the commercial entity “Disclosure Requirements for Financial Statements of Nonpublic Companies” at BK-CX-13.1 . The disclosures included in this checklist have been summarized from FASB ASC 940, Financial Services—Brokers and Dealers link) , and the AICPA Audit and Accounting Guide (AICPA Guide), Brokers and Dealers in Securities (2013), updated by the AICPA as of July 1, 2013. Some of the disclosures included in this checklist originate solely from the AICPA Guide. Accordingly, such disclosures are not authoritative because they are not included in the FASB Codification. However, the authors believe many firms will continue to provide those disclosures even though the exclusion from the FASB ASC indicates the disclosures are no longer required by GAAP. While the authors would generally label such disclosures as accepted practice, those disclosures retain specific reference to the paragraphs in the AICPA Guide where they are discussed to provide users a source for the disclosure.
Note that this is a disclosure checklist, not a checklist for applying GAAP; therefore, measurement and certain financial statement presentation questions are not addressed. In addition, certain disclosures applicable for only carrying broker-dealers are excluded.
This checklist is current through the Accounting Standards Update No. 2014-07 (March 2014).
Instructions: A block ¨ has been provided for certain major disclosure captions. If the major caption does not apply to your client, simply place a (ü) in the ¨. It will then not be necessary to check N/A for each question under the major caption. Otherwise, respond to each question with a (ü) in the appropriate column: (1) Yes—disclosure made, (2) No—item present, but no disclosure made (any item checked “No” should be explained in the checklist or in a separate memorandum), or (3) N/A—either the item is not present or it is immaterial to the financial statements.
Note: Certain disclosures required for broker-dealers may not be applicable to introducing broker-dealers. Such disclosures are included in this checklist; simply mark the steps N/A.
/ Disclosure Made? // Yes / No / N/A /
General /
1. Do the financial statements include the appropriate facing page and the oath or affirmation form on Form X-17A-5? (SEC Rule 17a-5; .114 )
2. If the broker-dealer requests confidential treatment of other than the statement of financial condition, were the public and nonpublic portions filed separately and in the format required? (.138 )
Statement of Financial Condition /
Cash /
1. Are the following separately classified in the statement of financial condition or disclosed in the notes: [(a) ; 4.26 ]
a. Cash in banks subject to withdrawal restrictions?
b. Restricted deposits held as compensating balances?
c. Cash segregated in compliance with federal or other regulations?
Securities /
1. Are securities sold, not yet purchased properly classified and reported in the statement of financial condition? (2-2 , 40-320-35-1 and , and 40-320-45-2 ; –.53 )
2. Are proprietary securities entered into for trading or investment purposes included in securities owned; and securities sold, not yet purchased? (5-2 )
3. Is the broker-dealer’s share (that is not merely contingent) in underwriting or joint accounts with other broker-dealers for issued securities included with its trading accounts? (5-2 )
4. With respect to securities under agreements to repurchase or resell: (860 ; –.46 )
a. Are the securities presented gross, except when a right of offset exists and the conditions described in -11 have been met? (5-3 )
b. Is collateral policy properly disclosed? (860 )
Memberships /
1. Are the following types of memberships in exchange recognized as an asset: (5-1 and 40-340-25-2 ; –.28 )
a. Memberships held under an appropriate agreement (that is, an ABC agreement)?
b. Memberships contributed for the broker-dealer to use under a subordination agreement?
Bank Loans /
1. Is there disclosure of the general attributes of bank loans, including the collateral pledged? (-25 and 60-30-50 ; –.55 )
Redeemable Forms of Equity /
1. Are any “redeemable” forms of equity separately classified in the financial statements as a liability (rather than as equity) and disclosed in the notes? (-45 and 80-10-50 ; 4.14 )
Statement of Shareholders’ (or Members’) Equity /
1. Does the statement of financial condition appropriately separate subordinated liabilities and ownership equity? (Generally accepted)
2. Does the statement of changes in liabilities subordinated to claims of general creditors present the increases and decreases to subordinated liabilities for each year being reported on, even if no increases or decreases in subordinated liabilities occur during the year? (SEC Rule 17a-5; 4.15 )
3. Is there disclosure of the amount net capital and its required net capital, computed in accordance with SEC Rule 15c3-1 or other requirements? (SEC Rule 17a-5; 4.20 )
Statement of Changes in Financial Condition /
1. Are trading securities activities presented in the “Operating” section of the statement of cash flows? (5-7 ; 4.12 )
Income Statement /
1. Does the statement of income or operations separately disclose revenues and expenses by the following major types: (4.10 and .63 )
a. Commission income? (5-3 and 40-20-25-2 ; 4.64 )
b. Interest and dividend income and expense? (–.68 )
c. Principal transactions?
d. Underwriting income and expense? (-25 ; 4.70 )
e. Management and investment advisory income? (4.71 )
f. Exchange fees? (4.73 )
g. Occupancy?
h. Employee compensation and benefits?
i. Communication and data processing?
2. With respect to fixed-income securities purchased at a discount or premium, has consideration been given to: (5-4 ; 4.50 )
a. Presenting accreted interest as interest?
b. Presenting income and the changes in valuations as trading gains and losses?
3. Has the rebate or interest expense on repurchase transactions that are accounted for as financing transactions been reflected separately from any trading gains or losses? (5-1 ; .122 )
4. Are the gross components of any income and expense from complex trading strategies (such as matched-stock borrow and loan transactions, matched-book trading strategies, box spreads, conversions, and reversals) presented net in the income statement been disclosed on the face of the financial statements or in the notes? (5-3 , 40-320-45-6 , 40-320-50-1 ; .123 )
5. Has any income or loss allocable to “redeemable” forms of equity been reflected separately as interest cost in the income statement or disclosed in the notes? (-10 ; 4.14 )
6. Are realized and unrealized trading gains and losses (principal transactions) presented net? (5-3 , 40-320-35-3 , and 40-320-45-5 ; 4.69 )
Notes to Financial Statements /
Commitments and Contingencies /
1. Are the following matters properly presented and disclosed in the financial statements: (4.57 )
a. Contractual commitments in underwriting and when-issued contracts? (0-1 )
b. Contingencies?
c. Indemnifications and guarantees? (4.57 )
d. Subordinated borrowings? (4.58 )
e. Underwriting?
Consolidated Entities /
1. If the statement of financial condition on Part II or Part IIA of the FOCUS Report is not consolidated, is a summary of financial data (including assets, liabilities, and net worth) for subsidiaries not consolidated in the Part II or Part IIA filing included in the notes to the financial statements? [SEC Rule 17a-5(d)(2); –.17 ]
2. If the statement of financial condition on Part II or Part IIA is prepared on a different consolidated basis, such as a “one-line” (equity) basis, are any differences, if material, disclosed in a note to the financial statements or included in supplementary information? [SEC Rule 17a-5(d)(2); 4.16 ]
3. If any subsidiaries are consolidated under the flow-through capital benefits of Appendix C of SEC Rule 15c3-1, have summary financial statements of such subsidiaries, when material, and the effect of the consolidation on net capital and required net capital been disclosed? [SEC Rule 17a-5(c)(2)(ii); 4.17 ]
Supplementary Schedules /
1. Do supplementary schedules include a computation of net capital under SEC Rule 15c3-1 in accordance with the requirements and format of Part II or Part IIA of the FOCUS Report (Form X-17A-5)? (SEC Rule 17a-5; 4.18 )
2. With respect to the computation of net capital under SEC Rule 15c3-1 in the audit report with the broker-dealer’s corresponding, unaudited, and most recent FOCUS Report filed: (SEC Rule 17a-5; 4.21 )
a. Do the supplementary schedules present a reconciliation, including appropriate explanations, of any material differences between the computations?
b. If there are no material differences, was a statement filed indicating that fact?
PBK-CX-13.2
(Continued)